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Valuepart, Inc. v. Farquhar

United States District Court, N.D. Illinois, Eastern Division

September 29, 2014

VALUEPART, INC., Plaintiff,


AMY J. ST. EVE, District Judge.

Defendant Richard M. Farquhar ("Farquhar") moves to compel arbitration and stay these proceedings pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq. For the reasons set forth below, the Court grants Farquhar's motion.


Plaintiff ValuePart, Inc. ("VPI") filed its amended complaint for injunctive relief and monetary damages against Farquhar on May 28, 2014. (R. 9, Am. Compl.) VPI is in the wholesale and retail business of distributing after-market undercarriage and repair parts in the construction industry. ( Id. ¶ 7.) Farquhar was hired as the President of VPI in 2006, and also served on the VPI Board of Directors. ( Id. ¶¶ 6, 10.) VPI alleges that beginning in 2007, Farquhar developed business interests with competitors that were adverse to VPI, interfered with VPI's contractual relationship with its largest supplier, and fraudulently induced VPI into entering into Farquhar's 2013 employment agreement. ( Id. ¶¶ 1, 11, 125-131.) Based on its allegations, VPI asserts four claims against Farquhar: 1) breach of fiduciary duty; 2) breach of contract; 3) fraudulent inducement; and 4) tortious interference with contract. VPI terminated Farquhar's employment in 2014 following the filing of this lawsuit. (R. 16, Opp'n to Mot. to Compel at 2.)

Farquhar's employment with VPI was governed by a series of three written agreements. The first two agreements, executed in 2006 and 2008, do not contain arbitration clauses. (R. 9-9, 2006 Agreement; R. 9-10, 2008 Agreement.) The most recent agreement, executed in May 2013, contains a mandatory arbitration clause. (R. 9-11, 2013 Agreement.) It states in relevant part:

12. Arbitration. If at any time during the term of this Agreement any dispute, difference, or disagreement shall arise upon or in respect of the Agreement, or the meaning and construction hereof, every such dispute, difference, and disagreement shall be referred to arbitration before a single arbiter in accordance with the then prevailing commercial arbitration rules, including the Emergency Interim Relief Procedures, of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered and a confirmation order sought in any court having jurisdiction thereof... Any arbitration arising hereunder shall be conducted in the Chicago, Illinois, area unless the parties mutually agree in writing to another location. To the extent, and only to the extent, that any controversy or claim arising out of or relating hereto is determined to be a non-arbitrable issue, claim or controversy under applicable law, the parties hereto agree to stay any litigation or suit relating to such non-arbitrable cause of action, controversy or claim until all other arbitrable controversies, claims and issues are resolved by binding arbitration in accordance with this Section. All parties hereto agree that any findings, judgments, or awards rendered by the arbitrator(s) shall be binding on all parties and may not be resubmitted or litigated in any litigation, suit or proceeding relating to non-arbitrable issues. Nothing herein shall be construed as preventing or depriving either party from seeking equitable relief in a court of competent jurisdiction to prevent continuing violations of the Agreement or to preserve the status quo. Any party to this Agreement may bring as a summary proceeding (including, without limitation, a plea in abatement or motion to stay further proceedings) an action in court to compel arbitration of any issues, claims and controversies in accordance with this Agreement.

( Id. at 9.) On June 11, 2014, Farquhar filed his motion to compel the arbitration of VPI's four claims based on this provision. (R. 13, Mot. to Compel.)


The Federal Arbitration Act ("FAA") "is a congressional declaration of a liberal federal policy favoring arbitration agreements.'" Continental Cas. Co. v. Am. Nat'l Ins. Co., 417 F.3d 727, 730-31 (7th Cir. 2005) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.'" Id. Further, courts broadly interpret the FAA to govern the interpretation, enforcement, and validity of arbitration agreements in commercial contracts. See Moses H. Cone Mem'l Hosp., 460 U.S. at 24. This policy does not override, however, "the principle that a court may submit to arbitration only those disputes... that the parties have agreed to submit.'" Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 302, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2012) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. at 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)).

The FAA provides that binding arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Section 3 of the FAA provides that if an agreement is governed by a valid arbitration provision, the court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration." 9 U.S.C. § 3. "Thus, if one party to a contract containing an arbitration clause attempts to avoid arbitration and files suit in the district court, the other party may move to stay or dismiss the action on the ground that the FAA requires the arbitration clause of the contract to be enforced." Volkswagen of Am., Inc. v. Sud's of Peoria, Inc., 474 F.3d 966, 970 (7th Cir. 2007) (citing 9 U.S.C. §§ 3-4).


In his motion, Farquhar requests that the Court stay VPI's action and compel arbitration. "Whether or not [a] company [is] bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the court on the basis of the contract entered into by the parties.'" Zurich Am. Ins. Co. v. Watts Indus., 466 F.3d 577, 580-581 (7th Cir. 2006) (quoting AT & T Tech., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)); see, e.g., Janiga v. Questar Capital Corp., 615 F.3d 735, 741 (7th Cir. 2010) ("[W]here the dispute at issue concerns contract formation, the dispute is generally for the courts to decide.'" (quoting Granite Rock, 561 U.S. at 296)). The issue of contract formation is governed by state law. Jainga, 615 F.3d at 742. "To compel arbitration, a party need only show: (1) an agreement to arbitrate, (2) a dispute within the scope of the arbitration agreement, and (3) a refusal by the opposing party to proceed to arbitration." Zurich Am. Ins. Co., 466 F.3d at 580-581. "Once it is clear... that the parties have a contract that provides for arbitration of some issues between them, any doubt concerning the scope of the arbitration clause is resolved in favor of arbitration as a matter of federal law." Gore v. Alltel Commc'ns, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012).

Here, VPI refuses to proceed to arbitration. It argues alternatively that (i) there is not a valid arbitration agreement between the parties, and (ii) if there is a valid arbitration agreement, its scope is too narrow to reach VPI's claims. The Court will address each of these arguments in turn.

I. Validity of Arbitration Agreement

VPI objects to the validity of the arbitration clause in the 2013 Agreement on two bases. First, VPI claims that Farquhar fraudulently induced it to enter into the arbitration provision. In its Opposition, VPI argues that it alleges in the Amended Complaint that Farquhar's fraud was specific to the arbitration clause, and did not pertain to the 2013 Agreement as a whole. VPI contends that because of this, the Court (and not the arbitrator) should make the initial determination of whether the arbitration provision is void for fraud. Second, VPI contends that the forum selection clause contained in the 2013 Agreement conflicts with the arbitration clause, and given the exclusive, mandatory language of the forum selection clause, the forum selection clause should govern rather than the arbitration provision. The Court disagrees with both of VPI's contentions.

A. Claim that Arbitration Provision Was Fraudulently Induced

VPI first argues that Farquhar fraudulently induced it to enter into the arbitration provision contained in the 2013 Agreement. The initial question for the Court is whether VPI alleges that Farquhar fraudulently induced it to enter into the arbitration clause specifically, or whether VPI alleges that Farquhar fraudulently it to enter into the entire 2013 Agreement more generally. "[I]f the claim is fraud in the inducement of the arbitration clause itself - an issue which goes to the making' of the agreement to arbitrate - the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally..." Gore, 666 F.3d at 1037 (quoting Prima Paint Corp. v. Flood & Conklin Mfg., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)). When a claim does not make allegations of fraud that are uniquely related to the arbitration clause, the arbitrator, not the district court, must resolve the claim. James v. McDonald's Corp., 417 F.3d 672, 680 (7th Cir. 2005) (compelling arbitration where the plaintiff's allegations of fraud were not specific to the arbitration ...

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